LAHORE, Dec 26: The oil distribution companies are earning over Rs40 billion profits, which, if curtailed could bring down power tariff substantially and huge relief to common man.

Experts in the oil and power sector criticize government for allowing the companies to fix their profits in percentage terms instead of fixed ones.

“Till December 2001, these companies were charging Rs159 per ton,” says an official of the ministry of petroleum. From January 2002, these companies were allowed to fix their profit in percentage; 3 per cent to begin with, with a plan to raise it to 5.5 per cent. This suddenly increased their profits from around Rs700 million to around Rs2 billion from the furnace oil head alone. The government, while allowing this huge increase, failed to take note of the fact that these companies did not make any extra investment to justify this huge increase in profits, he said. All their investment was made following the induction of the independent power producers (IPPs). Why they were allowed to fix their profit in percentage is anybody’s guess, he claimed.

A former member power of Wapda claimed that the recovery of every conceivable expenditure by these companies was ensured in the price mechanism.

In addition to oil price in the world market, these companies also charge premium, carriage and freight, LC commission charges and service charges, bank charges, insurance premium, handling charges, ocean losses, FOTCO (Port Qasim) handling charges, demurrage, booster pump charge, load port surveyor, landed cost, Ad Valorem Tax and transportation costs. These heads cover every possible expenditure that the companies could incur.

Allowing them three per cent on the top of it is against all prudent business practices. The general sales tax is not included in this long list of expenditures, he said. The list itself is comprehensive enough to ensure recovery of every penny for these companies, and hardly justifies any additional load on people, he insisted.

If the total oil imports of $2 billion are taken as a benchmark, these companies are making around $700 million (almost Rs40 billion) in profits. Controlling this unjustified profit could bring down prices of oil and power.

According to a former member finance of Wapda, the power sector consumes about 70 per cent of furnace oil imports — out of 4.5 million tons of total imports, Wapda consumes 1.3 million tons and the IPPs 2 million tons. If the government could check profit of the companies, it must bring relief to power customers, he said. The above-mentioned list of expenditures not only ensures recovery of all spending but also cost inefficiencies like the demurrages and ocean losses. In these circumstances, they hardly deserve any extra protections, he insisted.

Dilating upon the inefficiencies of the companies, he said that in recent tenders for the import of furnace oil, Wapda received bids of $15.50 and $16.75 per ton for transportation. The PSO had received $18.33 for both months. This is in spite of the fact that Wapda imports only a fraction of the PSO imports. Bulk import of the PSO should have brought down its transportation charges, but it has not, he lamented.

What makes this percentage mechanism more pathetic is the fact that these companies would get extra money even for any hike in oil prices or any of item in above-mentioned list, says an official of the Institute of Electrical and Electronics Engineers Pakistan (IEEEP). Dilating upon his point, he said that if cost of transportation goes up, it would enhance total bill and the companies would get three per cent extra for the same. This is highly unjustified, he said.

The government must reconsider its decision of linking profits to overall expenditures, they insisted and said: “The government preference to make every public utility profitable, fit for privatization, must not make peoples’ life miserable.”